Terraco Gold Corporation TCEGF

RE:Waterton debt dilution effect

[Fullplate]

Narcats, it's probably true that many shareholders are unclear about the terms of the US$12 million convertible debenture held by Waterton, which matures in 4 years. However, the conversion is not for shares of the parent company that is Terraco Gold. The conversion shares would be 45% of TGC Holdings, a subsidiary company which only owns Terraco's Spring Valley NSR's. The Moonlight NSR, the Idaho property, cash and other Terraco assets are outside of that subsidiary.  Obviously, Spring Valley is the most important Terraco NSR, but the Moonlight NSR is also very valuable.

The US$12 million debt will have to be paid off  with either cash or the subsidiary shares, and absent some buyout, cash is not likely to be available.  However, I think a buyout is likely before 2021 because Spring Valley should move toward production before then. Waterton will not be the one developing a mine. Will they want to hold 45% of Terraco's Spring Valley NSR's long-term?  Very unlikely. My conclusion is that there will be a simultaneous buyout of both Waterton's Spring Valley and Moonlight assets, together with Terraco's NSR's.  And that deal would retire the debentures.  My one hope is that the buyout price is not too cheap. I'm hoping that the price of gold has a chance to complete most of its next major run-up before the buy out. The worst timing would be a buyout this year at a modest premium (C$.18).  I doubt that is likely.